Top Tax Tips for Expats in Italy
Here are my top tax tips for living or moving to Italy.
- Beware of the DIY approach.
Always discuss your tax situation with an experienced and knowledgeable commercialista and financial planner Taxes in Italy are not that much different to other countries around Europe and you might be surprised at just how little you have to pay. The DIY’ers rarely find the tax breaks and end up paying more than they need to.
- A Tax Residence of choice does not work.
Just because you are spending 3 months of the year in the UK does not mean you automatically qualify for UK residency when in fact you are actually spending more of your time in Italy. The double tax treaty will not cover you in this case.
- Don’t think you can hide.
If you are an Italian tax resident (i.e you spend more than 183 day here a year), then the Guardia di Finanza can find you. There is always a paper trail: utility bills, mobile phone records, airline tickets, credit card and bank statements, as well as visual evidence from neighbours, gardeners, cleaners etc. It is much better to be ‘in regola’ and know that the knock on the door is highly unlikely.
- Beware the UK 90 day rule.
Quite a few people I meet try to claim UK residency because they go back to the UK for at least 90 days a year out of the last 3 years. This is not a law and is ignored by the courts. The Italian tax authorities would swiftly brush this aside as an excuse if they were trying to determine tax residency in Italy or not.
- Don’t rely on a double taxation treaty to protect you.
A double taxation treaty is merely a statement saying that you cannot be a tax resident of 2 countries at the same time. So, you have to be resident in at least one country in any one year. The Italian’s will quite quickly assume that you are Italian tax resident if there are any signs of regular/permanent establishment in the country.
- Be very wary of trying to be non resident anywhere.
If you are claiming to be a non tax resident anywhere then you could misunderstand the rules of the countries that you are living in. It is possible but most countries will deem you to be tax resident even if you spend less than 6 months of the year in the country. They just find it hard to accept that you can be non resident anywhere.
- Don’t forget to register your presence.
Some people move to Italy and then decide not to report that they are living here and try and live under the radar. It is illegal to NOT complete tax returns and a criminal offence in Italy. Even if you are paying tax on pensions in other countries, have assets overseas or income from other sources, the tax code in Italy states that as a tax resident you are liable to taxation on your worldwide income and assets. However you might get some Double tax treaty relief’s from Italy for paying taxes in another country already.
- Tax favoured investments in one country do not necessarily apply in Italy.
It is often the case that tax free accounts in other countries are subject to tax in Italy and need to be included on your tax returns under Income/Capital gains.
The classic example is the UK Individual Savings Account. (ISA). It is not recognised as a tax free account in Italy and is therefore taxed on income and capital gains. You might need to re-examine all your old investments and replace then with tax efficient investment for Italy (An Italian compliant Investment Bond).
- Watch out for tax free lump sums from pensions
Be aware of taking lump sum payments from your pension when you retire. In Italy it may be the case that the lump sum is taxable. The UK pension system allows a lump sum pension payment on retirement. In Italy that lump sum is taxable and therefore it might be advisable to take it before you leave for the
country. You might also consider moving the pension fund to a QROPS ( Qualified Recognised Overseas pension Scheme). This means you can put the pension outside the UK tax system, avoid having to buy an annuity and potentially avoid a charge on the fund at death.
- Don’t be worried about tax planning in Italy.
Life in Italy is great. Taxes are not that different to those in other European countries. If you plan early enough and do things properly you can live your life in Italy, without problem. I tell my clients that it really is not worth taking the risk. In addition, the lifestyle in Italy can be significantly cheaper than that of Northern European neighbours, especially if you are intending on living a rural life in Italy, so whereas your taxes may increase your cost of living will compensate.
- Don’t believe everything the commercialista tells you
I have a lot of experience dealing with other professionals in Italy and the commercialista (equivalent of an accountant). They can be excellent, but care must be taken in choosing the right one for you.
Understand the distinction between merely ‘reporting’ your financial affairs to your commercialista and ‘planning’ your finances through a qualified and Italian regulated financial planner.(The Spectrum IFA Group) I help clients to look at their finances in details, establish better and more tax efficient ways to manage their finances and come up with solutions that work for them and ensure a happy and worry free life in Italy.
And in the end, that is what life in Italy, for most, should be. Happy and worry free! There is so much more to enjoy here than concerning yourself, daily, as to whether you could or should be doing something better with your money.
Article by Graham Thornley – The Spectrum IFA Group
If you would like any more information on tax planning, QROPS, investment planning or general financial planning whilst living in Italy, then you can contact me on:
Cell. 0039 389.780.4171